Performance Measurement
and
Financial Statement
Analysis
Convery 2013


Performance objectives and system
Documents for assessing whether
objectives were met

Performance measures or indicators

Benchmarks and best practices

Caution: unfair or inappropriate
measures of performance
Convery 2013

Effective and efficient operations

Compliance with laws and regulations

Financial management (short and
long-term)

Fiduciary responsibility

Sustainability of the organization over
time

Making a difference
Convery 2013
1.
2.
3.
4.
5.
6.
7.
Get consensus from stakeholders on the
organization’s mission, goals, objectives.
Develop qualitative and quantitative performance
indicators.
Systematically collect data to assess performance.
Compare performance to benchmarks, both peer
and “aspire to” organizations.
Assign clear responsibility for performance and
reward it when achieved.
Report regularly on performance to a broad set of
stakeholders with effective methods of
presentation.
Listen to feedback and implement changes
through a “continuous quality improvement” plan.
Convery 2013
PROCESS MEASURES

Input Measures – effort expended on a
program
RESULTS MEASURES



Output Measures – level of service
provided (often stated in nonfinancial
terms)
Outcome Measures – effect the service
has on the program’s stated objectives
Efficiency Measures – comparison of the
level of inputs with outputs or outcomes,
e.g., cost per persons who have achieved
the goals.
See GASB’s Performance Measurement www.gasb.org
Convery 2013

Timely financial information that fairly
presents the position and results of
operations

Level of service supplied adequate to
meet the demand for services

Customer satisfaction (both
expectations and perceptions)

Longevity and sustainable programs
over time

Community impact
Convery 2013





IRS Form 990 Return of
Organization Exempt From Income
Tax, with Schedule A, 990-T, 990POL see www.guidestar.org
Audited annual financial statement
and monthly unaudited statements
Application for tax-exempt status
Form 1023
Annual report and website info
“Grades” of watchdog groups such
as BBB Wise Giving Alliance, AIP,
Guidestar
Convery 2013






Focus on outcomes, not just outputs
Communicated clearly across the
organization
Benchmarked against prior years’ or
competitors
Easy to measure and interpret
Reliable and consistent over time
Based on data that is audited
Convery 2013









Common size
Liquidity
Going concern or profitability
Capital structure ratio
Program effectiveness
Efficiency
Leverage and debt coverage
Fundraising efficiency
Investment performance
Convery 2013

Each asset as a percent of total assets

Each revenue item as a percent of total
revenues and support

East expense item as a percent of total
expenses
Then compare these to budgeted ratios.
Convery 2013

Can the organization pay its current debts?
◦ Current ratio:
current assets/current liabilities
◦ Working capital:
current assets – current liabilities
◦ Acid test ratio:
quick assets/current liabilities (disregard
inventory)
Convery 2013




Are revenues sufficient to cover expenses?
◦ Revenue/Expense
◦ Operating ratio: net income/revenue
How many months (or years) of operating
expenses can be covered by current
unrestricted net assets
◦ 3-6 months is a minimum cushion to “meet
payroll” in times of declining revenue or
difficulty collecting A/R
◦ The AIP considers 3 to 5 years to be a large
amount, indicating the organization may
not need additional resources
Are revenues growing over time?
What type of revenues?
Convery 2013

Unrestricted Cash and Investments (current
and long-term)/long-term debt

Debt to Total Assets

Debt to Net Assets (equity)
Convery 2013


Is the NPO accomplishing its goals?
Is an appropriate amount spent on the
organization's exempt purpose?
◦ Program expenses as a percent of total
expenses
◦ Some say should be > 60% or 80%

Is a reasonable amount spent on
administering the organizations?
◦ Support expenses as a percent of total expenses
◦ Some say should be < 40% or 20%
Convery 2013

Is the cost per client per achieved
outcome decreasing over time?

What is the “cost” to achieve the next
level of quality?

Do the benefits exceed the costs of
delivering services?
◦ Expenditures per capita
◦ Cost per client
◦ Required subsidy per consumer
Convery 2013

Can the organization pay its total
liabilities and continue to operate as a
going concern?
◦ Total liabilities/Total assets

Are future years’ revenues needed to pay
for current services?
◦ Total debt to net assets or total debt to current
revenues

Is the debt service expense covered by
income?
◦ Net income (adjusted for noncash items) or
income before interest and depreciation) /
annual debt service expenses
Convery 2013

Are contributions received greater than
fundraising expenses?
◦
◦
◦
◦

Public support/Fundraising expenses
Should be > 1:1 Target might be 8:1
Fundraising expense/related contributions
Increase in public support over time
Are earnings on investments reasonable
in light of market trends?
◦ Rate of return on investments
◦ Payout rate on endowments
Convery 2013

Has the NPO complied with state laws?
◦ Uniform Management of Institutions Funds Act and Uniform
Prudent Investors’ Act (updated) that describe standards of
care, portfolio theory, and delegation of investment authority

Has the NPO conformed with its
Investment Policy:
◦ Sample: “Goal is to optimize invested funds while maintaining
a safe amount of risk and meeting the fiduciary responsibility
assumed by the organization.”
 Rate of return on investments; Risk/Return ratio; Payout
rate on endowments; Total return/investments

Are variances between budget and actual
reasonable for:
◦ Realized and unrealized gains/losses; investment income

Convery 2013


Not-for-profit health care organizations (HCO)
must display a performance indicator and
disclose in the notes, such as:
◦
◦
◦
◦
Revenues over expenses
Revenues and gains over expenses and losses
Earned income
Performance earnings
◦
◦
◦
◦
◦
◦
Transactions with owners
Equity transfers
Receipts of restricted contributions
Unrealized gains and losses on investments
Investment returns restricted by donors
Extraordinary items
These items should be reported separately from
the indicator
Convery 2013







BBB Wise Giving Alliance “Standards for Charitable
Solicitations: www.give.org
Charity Watch www.charitywatch.org “Charity
Rating Guide”
Guidestar’s Analyst Report at www.guidestar.org
Board Source www.boardsource.org
United Way www.uwa.org
Maryland Association of Nonprofit Organizations
“Standards of Excellence” at
www.standardsforexcellence.org
Industry benchmarks compiled by accrediting
agencies, e.g., CCAC
Convery 2013
5 years ago
Public Support
Today
2 years from now
90%
60%
30%
Fees for Service
5%
35%
60%
Other,e.g.,
investment income
5%
5%
10%
100%
100%
100%
Convery 2013
FY05
# of months of
expenses in net
assets
FY06
Bench-mark
NPO Quartile
3 mo.
6 mo.
12 mo.
25%
Current ratio
1.86
2.5
2.0
50%
Bond covenant
ratio
5.62
1.92
1.50
75%
$5 to $1
$8 to $1
$3 to $1
75%
Fundraising ratio
Convery 2013
Actual
May
% Occupancy
Budget
May
Monthly Variance
100%
80%
25% favorable
FTE Staff
40
40
0
# of clients
80
100
20% unfavor-able
Convery 2013



Some easy to calculate ratios may not be fair.
e.g., the percentage of expenses spent on the
“program” vs. “supporting” the program (i.e., G&A
and fundraising)
Scenario: A relief organization that has gifts-inkind of food and clothing can either drop them
from an airplane in foreign countries (and have
relatively low support expenses) or have a field
staff on location trained in the logistics of
distributing food and clothing
Managing for the short-term (meet the budget)
and not the long-term.
Convery 2013



“Bottom line” measures used for
businesses don’t work since there are no
“owners” of an NPO expecting a return on
their investment.
Merely spending money on a program is
not an indicator of having reached the
program’s goals.
Allow more flexibility for NPOs less than
3 years old or with annual revenue less
than $100,000.
Convery 2013